A Binomial Tree with One-Month Time Steps Is Used to Value

question 7

Multiple Choice

A binomial tree with one-month time steps is used to value an index option.The interest rate is 3% per annum and the dividend yield is 1% per annum.The volatility of the index is 16%.What is the probability of an up movement?

• A) 0.4704
• B) 0.5065
• C) 0.5592
• D) 0.5833

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